Introduction

In the past decade, hemp has been the focus of a great
deal of attention and speculation. Advocates of hemp have
gone so far as to claim that hemp can save the world, yet
critics inevitably point to the plant's controversial
connection with marijuana and allude to hidden agendas. In
recent years world demand for hemp products has significantly
increased, spurred in particular by its popularity in North
America and Western Europe. Hemp as an industrial fibre crop
unquestionably has significant environmental benefits and
innumerable potential uses, but is it economically viable?

The principal suppliers of hemp to the world market today are
China and Eastern Europe, where hemp production has never
been prohibited, and low wages make economically possible
hemp's traditionally labour intensive harvesting and
processing. Enabled by changes in legislation, Western
European farmers have recently rediscovered hemp, but
substantial E.U. subsidies provide a significant economic
incentive to cultivate this crop.

This paper is concerned with two principal questions. First,
is the recent pro-hemp movement a passing fad, or does hemp
offer sustainable competitive advantages as a commercial
crop? In other words, for Canadian farmers, can hemp compete
economically with other agricultural crops? Secondly, as a
fibre source, can hemp economically compete against
established commodity fibres such as wood or cotton?

The paper starts with a brief overview of the hemp plant's
properties, its potential uses, environmental advantages and
hemp's historical prominence. The economic investigation
commences with a detailed look at the costs of growing hemp
for fibre or seed in Canada based on hemp research done in
Canada in 1994 and 1995 and reports from around the globe.
The results are given as the break-even prices for fibre and
seed respectively. The profitability of growing hemp is
dependent on market prices for the unprocessed hemp above
these break-even levels.

Next, the principal markets for hemp, and hemp's suitability
and economic viability in these varying applications when
compared to established and other emerging alternatives is
examined. Hemp processing, in particular fibre separation and
seed pressing, is then explored in order to determine the
value of hemp's end products, and thus the realistic cost of
hemp to the end user. Since hemp requires considerable
processing for certain applications, the economic viability
of these processes will be crucial. Pulling all of these
factors together, the paper's conclusions respond to the one
overriding question - does commercial hemp cultivation in
Canada make economic sense?

What is Hemp?

Hemp is an annual herbaceous plant of the species Cannabis
sativa, meaning "useful hemp." It is a high yield
commercial fibre crop which flourishes in areas with
temperate climates, such as Canada. Hemp grows successfully
at a density of at least 150 plants per square meter, and
reaches a height of two to five meters in a three month
growing season. Every part of the plant can be used
commercially (see Exhibits 1 and 2).

The stalk of the hemp plant is harvested for its fibres. The
fibre length and the content of cellulose and lignin are
important quality parameters for raw material used in the
cordage, textile, paper and fiberboard industries. Hemp
plants yield three different types of fibre:

Bast Fibres

Hemp has traditionally been grown for its valuable and
versatile high quality (primary bast) fibres. The production
of these fibres has traditionally been a very labour
intensive process. After harvesting, the hemp stalks are
soaked with water to initiate a process of retting (the
decompositional separation of the bark-like bast fibres from
the inner woody core). After the retting process, the plants
are dried and then the fibre must be separated from the
hurds, shaken out, and cleaned. Recently, alternative fibre
separation processes have been developed, using technologies
such as ultrasound and steam explosion, which as much less
labour intensive. Once separated, the bast fibres are ready
for spinning and weaving into textiles, or for pulping into
high quality pulp. Because of their high tensile strength,
bast fibres are ideal for such specialized paper products as:
tea bags, industrial filters, currency paper, or cigarette
paper.

Bast fibres come in two varieties:

1. primary bast fibres which are long and low in lignin.
These fibres are the most valuable part of the stalk, and are
generally considered to be among the strongest natural fibres
known to mankind.

2. secondary bast fibres which are medium length and higher
in lignin are less valuable and become more prevalent when
the hemp plants are grown less densely (therefore less
competition for light), and thus grow shorter, fatter stalks.

Hemp Hurds

The hurds are the short fibred inner woody core of the
hemp plant which comprises 70-80% of the stalk. They are
composed of libriform fibres which are short and high in
lignin. The hurds are essentially the by-product of the
process of extracting bast fibre from the hemp stalks, and
were traditionally considered waste. Though the fibres are
shorter, the lignin content of hurds is similar to wood, so
there are opportunities for using the hurds for tissue of
newsprint pulp. Hurds can also be used to produce a wide
range of products including rayon, biomass fuel, cellophane,
food additives, and industrial fabrication materials.

Hemp Seeds

Hemp seeds are also a potentially valuable commodity. The
seeds have exceptional nutritional value. They are second
only to Soya beans as a source of complete vegetable protein
and hemp seeds contain all 8 essential amino acids in the
correct proportions humans require. Hemp seeds also contain
30-35% oil by weight. Hemp seed oil is approximately 80%
polyunsaturated essential fatty acids (EFA's). Furthermore,
the proportion of these oils in hemp seeds most closely match
the ratios which have been determined to be most beneficial
to human nutrition.[1] However, although the oil is very
healthy, this high percentage of polyunsaturated fats also
makes hemp seed oil somewhat unstable and so subject to
fairly rapid rancidity unless preserved. Hemp seed oil can be
extracted or expressed and used in cooking, or industrial
uses such as paints, varnishes, detergents, cosmetics, and
lubrication. The left over seed casings are a rich source of
protein which can be ground into flour.

Hemp vs. Marijuana

The flowering tops and to a lesser extent, the leaves of
the Cannabis sativa plant contain delta-9
tetrahydrocannabinol (THC). This chemical substance gives
marijuana its psychoactive properties. Generally Cannabis
sativa strains with a THC concentration of less than 0.3 %
are classified as low-THC or "fibre" hemp. At this
low concentration, the psychoactive properties of the hemp
plant are nonexistent. Marijuana, on the other hand has an
average potency of 5-15% THC. In any Cannabis plant, no THC
is to be found either in the stalk or the seeds.

Hemp and the Environment

In both its cultivation and uses, hemp is considered an
exceptionally environmentally friendly crop. Hemp requires
little or no pesticides as it is naturally pest resistant.
Hemp is also a natural herbicide known for its ability to
smother weeds when grown at a density suitable for producing
high quality bast fibre. Hemp also has a lower net nutrient
requirements than other common farm crops, since it can
return 60-70% of the nutrients it takes from the soil when
dried in the field. However, prior to the nutrient recycling,
hemp extracts more nutrients per hectare than grain crops due
to its fast biomass production.[2] Its deep root system is
also very beneficial as it is effective in preventing
erosion, cleaning the ground, providing a disease break, and
helping the soil structure by aerating the soil for future
crops, when it is grown in rotation with other crops.

Hemp is also a particularly high yield fibre crop. In fact,
an acre of hemp produces more biomass than most other crops.
As a result hemp can be used effectively in many applications
as an alternative to wood or fossil fuels. For example, hemp
can be used as a renewable, low polluting source of biomass
fuel, or hemp pulp could easily replace wood pulp in paper
making.

HISTORY OF
HEMP

Production of hemp originated in Central Asia thousands of
years ago. There is evidence of the use of hemp and marijuana
in almost all ancient, and many modern civilizations. In
fact, the oldest surviving piece of paper in the world,
discovered in China and dating back over 2000 years, was made
from hemp.[3] From the 16th to the 18th century, hemp and
flax were the major fiber crops in Russia, Europe and North
America. Ropes and sails were made of hemp because of its
great strength and its resistance to rotting. Paper and
textiles were other important historical applications.

As early as 1801, the Lieutenant Governor of the province of
Upper Canada, on behalf of the King of England, distributed
hemp seed free to Canadian farmers. The government offered to
pay premiums and bounties to the "deserving cultivators
and exporters of hemp in the Province." As a result hemp
became an important Canadian cash crop. The London, Ontario
region was especially well suited to the cultivation of hemp.
At its peak, several thousand acres of hemp were grown in
Western Ontario alone.

During the late 19th and early 20th centuries, increasing
labour costs encouraged a shift away from hemp to cotton,
jute, and tropical fibers which were less labour intensive.
The decline which continued with the advent of synthetic
fibers such as polyester and nylon was accelerated by changes
in legislation. Because of its association with marijuana,
the cultivation of hemp was declared illegal during the
1930's in many industrialized as an extension of newly
imposed bans on marijuana.

Prior to its prohibition, hemp made a significant
contribution to the economic and social fabric of society. It
was used extensively for ropes, twine, tough thread,
textiles, paper, building materials, cellulose plastics and
resins, as well as food and oil from the seeds. World
production peaked in 1940 at about 832 000 tonnes of fibre.

Since 1992, a number of European countries including France,
the Netherlands, England, Switzerland, Spain, and most
recently Germany have passed legislation allowing for the
commercial cultivation of low-THC hemp. In fact, the E.U. has
recently been promoting hemp cultivation by providing
subsidies of approximately C$1400 per hectare to grow
hemp.[4] In 1992, world production of hemp fiber was 124,000
tonnes with India, China, Russia, Korea and Romania as the
major producers. In these countries, the cultivation of hemp
has never been prohibited.

The Legal Status of Hemp in
Canada

In 1937, the United States government imposed a heavy tax
on hemp producers under the Marijuana Tax Act. Canada
prohibited marijuana, and thus hemp production in 1938 under
the Opium and Narcotics Control Act. Production restrictions
were lifted from 1943 to 1945 in support of the war effort,
when hemp supplies from the Far East became scarce. In 1961,
the Canadian Narcotics Control Act (CNCA) allowed Cannabis to
be grown at the discretion of the Health Minister for
research purposes only.

In 1994, under the CNCA, one license was granted to a
Canadian company, Hempline Inc., to grow low-THC hemp in
Canada under the strict supervision of the authorities, for
research purposes only. This was the first time that a such
license had been granted under the CNCA to a private sector
organization. As a condition of receiving this approval, the
originally planned crop of 12 plots covering approximately
100 acres was reduced to one experimental field totaling 10
acres in size. The license granted to Hempline was valid for
one growing season only. Reapplication was required on an
annual basis for permission to grow subsequent experimental
crops.

A second condition of licensing by the government was that
the produced crop was to be donated to interested parties
(that also required government permits in order to process
hemp) for experimentation and research only and Hempline was
prohibited from receiving revenue from any of the hemp crop.
Also, the permit required Hempline to hire police officers to
keep constant surveillance on the crop, and the authorities
retained the right to periodically and randomly test the
plants to ensure that they fell below the allowable THC level
of 0.3%.

In 1995, research licenses were granted to seven groups
across Canada ,under identical conditions. A number of these
studies were joint efforts between private industry,
academics and government.

In Canada and the United States the possession or sale of
processed fibre hemp or hemp products has never been
prohibited, although importing of hemp products into Canada
is formally prohibited, but in practice is not restricted.
Clothing, paper, rope, twine, oil, and bird seed have been
some of the most common uses for hemp in Canada. In order to
meet the demand for these and other hemp products, Canadian
industry has been forced to source hemp internationally.

Agronomics

There are two potentially viable approaches to growing
hemp commercially: growing hemp for fibre or for seed. If
hemp is grown for fibre, it is sown very densely (a seed rate
of 55-70 kg/ha is standard, though for very high quality
textile fibre a much higher seed rate can be used[5]). Since
hemp grows so quickly, at this density hemp can effectively
out compete weeds, and so weed control measures (herbicides)
are not needed. If hemp is grown for seed, it is grown much
less densely (typically 10 -15kg/ha[6]) and is not as
effective at suppressing weeds, so herbicides will probably
be required. Hemp seed may be drilled or broadcast, though
drilling is recommended for uniformity. A standard grain
drill or modified alfalfa seeder can be used for sowing.

Pesticides are generally considered unnecessary in the
cultivation of hemp,[7] although researchers in Manitoba in
1995 reported that several pests had to be contended with.[8]
For the purpose of this paper, pesticide use will be
considered to be nil to reflect the majority of findings and
hemp's organic farming potential. Another positive aspect of
the crop is that once planted, no further husbandry is
required until harvest, thereby minimizing labour costs and
energy consumption.

Operating Expenses:

Presently, one of the most significant costs of growing
hemp for fibre relative to other crops is the cost of seed.
To ensure that seed strains being used will meet the
generally accepted THC level of <0.3%, certified varieties
from Europe will have to be imported since North American
hemp seed germplasms have completely disappeared as a result
of hemp's prohibition. Not only are the transportation prices
very high (over half the cost of the seed), but certified
seed demands a substantial premium because of current low
world supply (perpetuated by the strict certification system)
and continuously increasing demand, especially from Western
European farmers. Based on recent experience, certified seed
can be brought into Canada for approximately $2700/tonne.[9]
At a rate of 55-70 kg/ha, this translates to $61.80 to $78.75
per acre.

Although hemp generally requires no pesticides or herbicides,
it does have significant nutrient demands. The figures of 120
kg/ha Nitrogen, 100 kg/ha phosphate, and 160 kg/ha potash are
used for the purpose of cost calculation. These figures
derived from Hemcore's U.K. hemp growing experience are
consistent with other research.[10] Irrigation is required if
precipitation is less than 200mm over the course of the
growing period. Harvest period is critical, since after
flowering, the quality of the bast fibres starts to decline.

The operations required for growing hemp for fibre are:
seeding, cutting, baling, and bale handling. According to a
number of researchers, hemp can be cultivated using existing
farm equipment, however, for harvesting some alterations
maybe required. The machinery operating, investment and
depreciation costs used in these calculations are based on
Ontario and Manitoba corn production costs, but reflect the
need for more robust equipment and /or higher repair costs
due to the toughness of the crop.[11] Storage may also be
necessary, depending on the specific end use of the crop.

Projected Yields:

Claims for hemp fibre yields vary radically. Reported dry
matter yields range from 5-15 tons/ha, of which 12-40% can be
bast fibre. The yields generated by hemp depend greatly on
the strain of seed being grown, and farming practices and
conditions. Seeds bred for area with a shorter growing
season, for example, will tend to flower too early, and so
will have a reduced dry mass yield. Hemcore has, for example,
reported that the Hungarian varieties they have tested have
had a 70% greater biomass yield than the French varieties.
Furthermore, three years of trials resulted in average yields
of approximately 10.5 dm(dry matter)t/ha, while their first
year of commercial crops yielded only 5.0 dmt/ha. Having no
seeds bred specifically for its growing conditions, the U.K.,
like Canada, depends on seeds developed for other climes, so
initial commercial results are naturally relatively low.
The natural, or "unimproved" content of bast fibres
in hemp stalks is only 12-15%. Through selective breeding
programs, primarily in France, Ukraine, and Hungary, the
current average is over 20% and many strains have been
reported to yield over 30% bast fibre.[12] Only in Hungary
has any work been done on developing high yielding hybrids,
and so as Dave West points out, "the genetic load of the
crop is probably quite high, which would indicate opprtunity
to significantly improve the crop's productivity."[13]

Initial results from Canadian hemp researchers reveal dry
mass yields lower than in other parts of the world.
Australian farmers reported yields of 8-10t/ha, Ukrainian
farmers 8-10t/ha, Dutch farmers 10-14t/ha, while in the U.K.,
in contrast, commercial yields of only 5-7t/ha were reported.
Jack Moes, New Crops Agronomist for Manitoba Agriculture
reported yields from their first year of test of 4500-7700
kg/ha for seven different varieties, while A.E.Slinkard of
the University of Saskatchewan reported yields of 7100-9500
kg/ha. For the purposes of comparison, then a low and high
estimate of dry matter and bast fibre yield will be
calculated. A low , but realistic first crop yield of 6t/ha
will be compared with realistic future yields of 10t/ha. Such
yields would very likely be achievable on a commercial level
after a few years of cultivation experience and seed
breeding. Also, a low bast fibre yield of 22% will be
contrasted with a high yield of 30%, for a range of 1.3-3.0
t/ha. This difference can be accounted for by seed variety
and planting density.

Break-even Price for
Whole Stalk (Farmgate $/tonne):

Exhibits 3 and 4 detail the expected costs per acre of
growing hemp, and compares it to the costs of growing canola
and spring wheat in Saskatchewan, and canola and grain corn
in Ontario. Machinery costs are estimated using equipment
intensive corn cultivation and harvesting as a comparable,
and the high demands hemp places on equipment have also been
factored in. The final figures are in line with the
experience of Canadian hemp farmers, but lower hemp farmers
in some other countries. Australian farmers, for instance,
estimated their costs to grow, harvest, manage and secure
their hemp crops to be US$240/t. This figure however,
includes irrigation and storage costs, and the crop was also
picked up by hand after being cut by machine and left to ret
in the field. Note that the most significant cost of hemp
relative to the other crops is the cost of seed, over half of
which is the cost of transport.[14]

Below are the prices required at farmgate for break-even,
depending on the yield of stalk realized. These prices are
intended to cover ALL fixed and variable costs incurred by
the farmer.

PRICE REQUIRED FOR FARM GATE
BREAK-EVEN

Yield (tonnes/acre)

2.5t/ac

3t/ac

3.5t/ac

4t/ac

Seeding @ 55kg/ha

107.24

89.37

76.60

67.00

Seeding @ 70kg/ha

114.00

95.00

81.43

71.25

Hemp for Seed

Operating Expenses:

The cost of growing hemp for seed is reduced since the
seeds are planted much less densely. At the generally
accepted rate of 10-15 kg/ha, the cost of seed is
$11.25-$16.88/acre. These savings, however, are largely
offset by the need to use herbicides, since at this density
the hemp crop will not effectively smother the competing
weeds. As no research for the necessary requirements of
herbicides is currently available, the cost of $15.00/acre
for suppressing annual grass and broadleaf weeds is slightly
more than the sample costs for growing canola in Ontario, but
significantly less than that required for growing corn, since
the crop will still have natural pest and weed suppressing
abilities.[15] The fertilizer and irrigation requirements for
growing hemp for seed are comparable to growing hemp for
fibre.

Harvesting requirements for seed differ somewhat from fibre.
Although the primary revenue will be generated from the seed,
the remaining stalks, though of lesser quality than those
grown specifically for fibre, will also be of value and will
have to be harvested. The additional operation (hence cost)
required is combining, where the combine cuts the upper parts
of the plants, and threshes and cleans the seeds.
Subsequently the crop is mown and left to dry.[16]

Projected Yields:

As with growing hemp for fibre, reported seed yields vary
considerably. Seed yields, as well as the seed's oil content
depend on the seed variety and growing conditions. Average
expected yields range from 0.7-1.2 t/ha, and oil content is
generally between 30-35%.[17] The yield of dry matter stalk
when growing for seed will also vary, but is generally
expected to be in the same range as hemp grown for fibre, if
planted density is at least 15kg/ha. The fibre quality is
significantly lower, however, since the plants are subject to
less competition to grow vertically (resulting in fine
slender stalks and fibre), and fibre quality also declines
once the plants go to seed.

Break-even Price for Seed Only
(Farmgate $/bushel):

Yield (bushels/acre)

14.3bu/ac

19bu/ac

23.8bu/ac

Seeding @15kg/ha

16.6

12.5

10.0

Note: Assuming 1 bushel of hemp seed = 21kg[18] low yields of
300kg/acre, medium yields of 400kg/ha and high yields of
500kg/ha translates approximately into the expected
0.7-1.2t/ha seed yields.[19]

Sensitivity Analysis of
Break-even Points when growing for Seed and Fibre:

This analysis is based on a range of prices for hemp seed
derived from the average market prices for comparables
(flaxseed and canola) from 1989-1993. Flaxseed hit a low of
$5.00 in 1991, while canola reached $7.30 in 1993.[20] Since
hemp seed is such a rich source of protein (25%) and is rich
in nutritionally exceptional oil, these prices represent the
low range of realistic estimates. Furthermore, since there is
generally some loss of stalk yield resulting from the seed
harvesting, only low fibre yields of 2.5 and 3.0 tonnes/acre
have been considered. For each seed price the resulting
break-even price for the "leftover" stalk is given
in $/tonne.

Break-even Price per Tonne of
Stalk ($/t)

Price/bushel

Low/Low; 14.3bu/2.5t

Low/Med; 14.3bu/3.0t

Med./Low; 19bu/2.5t

Med./Med.; 19bu/3.0t

$5/bu

66.40

55.33

57.00

47.50

$6/bu

60.68

50.57

49.40

41.17

$7/bu

54.96

45.80

41.80

34.83

$8/bu

49.24

41.03

34.20

28.50

Additional Costs and Risks

A potentially substantial and unknown variable in growing
hemp commercially is the expected need for special licensing.
The current procedure for obtaining a research permit is very
elaborate and time consuming. Hopefully if commercial
cultivation were legalized this procedure would be largely
standardized and simplified. Also, there is an additional
cost to the authorities of surveying and testing the crops.
Furthermore, as long as the granting of these permits is at
the discretion of the Minister of Health, there is no
certainty that a farmer will be able to grow the crop. This
is a risk not only to the farmer, but is also a substantial
disincentive for industry who would rely not only on the
economic viability of the crop, but also on its guaranteed
availability.

Finally, assuming that the current maximum level of 0.3% THC
will continue, there is an additional and significant risk of
the crop testing above this legal level. If, for instance,
the crop were to test at 0.5%, the authorities would retain
the right to destroy the crop, and hence all revenues (and,
theoretically, criminally charge the farmer in question).
Certainly this risk will be at least partially alleviated by
using only "certified" seed, but then will the seed
provider be financially responsible for any variation? If so,
the resulting need for additional insurance will likely
result in even higher seed prices. Also worth noting is that
to date, no research permits have been granted for the
production of seed, although this is an area of significant
strategic importance considering the high price, short supply
and unadapted nature of imported varieties. Please note also
that these break-even points are based on farmgate prices, so
no transportation costs have yet to be factored in.

Markets

Market returns for hemp stalk, fibre, hurds or seed depend
on a number of factors, including:

crop quality

suitability for intended end use

amount of value-added processing that the
crop has been subjected to

available quantity of similar crops and
substitutes

proximity of producer to end user

The Canadian hemp industry is at a stage in its development
where the actual income per tonne is difficult to determine,
because full scale production has not been attempted.
Economies of scale are expected to reduce costs
significantly, but actual processing and capital investment
figures can only be estimated, and are largely based on the
experiences of other countries. The market prices expected
for hemp are derived from current market prices for the next
best alternative.

Principal Uses of Hemp

Although hemp has innumerable potential uses[21] this
study will focus on the more common, large scale commodity
products for which hemp has promise as a potential
alternative input. The most often quoted uses of the fibre
which define the necessary processing technology are as
follows:

1)Energy source (whole
plant):

Because of its high yield potential, hemp has been
acclaimed as an ideal biomass fuel. It can be burned as is,
or processed into charcoal, methane, methanol, ethanol, or
gasoline. Typical methodology for the processing of hemp for
fuel is destructive distillation or "pyrolysis".
Destructive distillation involves the subjection of hemp hurd
to heat and distillation in the absence of air. Hemp charcoal
as a biomass fuel can be burned in today's coal-powered
generators. Alternatively, Methane can be produced by the
anaerobic decay of hemp. Also, ethanol is typically made from
cellulosic biomass, and hemp is an excellent source of high
quality cellulosic biomass.

Although no processing would be required for this
application, high transport costs would necessitate regional
processing or power generating plants. The economic potential
of this application in the short term is questionable,
however, since hemp would have to compete with other
agricultural waste products. North American agriculture
currently generates over 350 million tons of cellulose waste
a year (straw, corn husks, etc.) much of which is burnt in
the field but has energy generating capacities generally at
least equal to hemp (see table below).[22]

Since these agricultural "waste" products currently
generate no additional revenue for the farmers, any amount
would be incremental income. To grow hemp specifically for
this purpose, then, would neither take advantage of hemp's
unique fibre qualities, nor would it command any premium
price over the likely nominal costs for such agricultural
waste.

2) Building material
(bast, core or whole plant):

The possible building material applications for hemp range
from an input for fibre board to insulation to hemp houses.
Although the bast fibres, because of their high tensile
strength, have significant potential as replacements for
glass fibres for fiberglass or as a replacement for asbestos
in fibre cement, such applications would require the bast
fibre to be separated from the hurds. Joe Hickey of the
Kentucky Hemp Growers Co-op has reported that a major
fiberglass manufacturer calculated the market value of bast
fibre to be $2000/ton.

Composites, which include paneling, medium-density
fiberboard, trusses, and support beams, comprise the
fastest-growing segment of the wood-products industry. In
1994, building materials accounted for 20 000 tons of
assorted crops, in 1996, it is expected to account for 500
000 tons.[24] Washington State Univ.'s preeminent Wood
Composite Laboratory has tested hemp for use in
medium-density fiberboard, and lab results show that hemp is
up to twice as strong as wood. Certain other low-cost
agricultural waste products are already being used in this
process (straw, for instance), but hemp has a significant
advantage because of its high tensile strength. Current
prices for wood chips used in fiberboard production are
approximately US$100/t, while straw is sold for as little as
US$10/t for animal bedding.[25]

Hemp hurds, traditionally considered a waste product are now
being used fairly extensively in France for insulation
materials and when combined with lime naturally petrify to
create a pourable building material. This material is five
times lighter, yet stronger than concrete, and has superior
insulation and fire retardant properties. The most renown of
these processes has been patented by a French company
Isochanvre.

3) Paper (bast, core or
whole plant):

Although in 1994, non-wood fibre sources accounted for
only 7-10% of total paper and board production worldwide,[26]
they have become the target of widespread interest as
traditional wood sources are being depleted, and consumers
demand tree-free alternatives. Hemp has additional
environmental advantages, since compared to wood fewer
chemicals are required to convert the low-lignin fibres to
pulp (thus reducing waste water contamination), and hemp
requires less, if any, bleaching. Hemp paper also has a much
greater resistance to decomposition, is not subject to age
related yellowing, and can be recycled much more often than
wood.

In Australia there is ongoing research into the viability of
pulping the whole stalk, although a study at the
Agrotechnical research Institute in the Netherlands concluded
that it is better to pulp bast and hurds separately.[27] When
processing the whole stalk, a mix of long and short fibres is
obtained which has similar properties to (and so would
compete price-wise with) good de-inked wastepaper stock, but
it drains slowly, and its throughput on standard papermaking
machines is two to three times slower than wood.

Australian Newspaper Mills technical manager Len Johnson
reports that hemp for newsprint "just looks
prohibitively expensive." Nevertheless, Johnson said
that in laboratory experiments "we have confirmed that
mechanical pulping gives rise to a useful pulp using the
whole stem of hemp." At the commercial production and
marketing level, however, Johnson said that hemp pulp
"competes head on" with TMP softwoods. Johnson also
said he was still "keeping an open mind" about
pulping hemp for newsprint, hoping that the process can be
achieved at a lower cost. Separated longer fibers cut to
suitable length, he said, can be used to make stronger
papers, even as a "reinforcement" for newsprint,
where it could replace the 4% to 25% chemical pulp.[28]

While the hurds can make excellent tissue paper and packaging
materials, chemical pulping of the shorter core fiber is
thwarted by the fact that "it just won't drain on a
paper machine." Once separated, however, bast fibres are
ideal for the higher priced but limited field of specialty
papers such as filter, currency or cigarette paper. Bast
fibre also has great potential as a reinforcing fibre for
recycled paper and packaging. Andy Graves, president of the
Kentucky Hemp Growers' Co-op has, for example, already
received an offer from a boxboard recycler who wanted to
order 20,000 acres of hemp to add strength to reused
cardboard.[29]

As with its application for building materials, hemp faces
stiff competition from other non-wood fibres. Long-bast-fiber
pulp, for example, may obtain a premium price of up to 20%
above top-quality long-fiber pine pulps,[30] but will face
strong competition from such fibers as cotton, sisal, flax
and abaca. Other non-wood fibres currently being researched
for use in pulp and paper are: kenaf, wheat and rice straw,
and cereal grasses. In particular, cereal grasses contribute
a readily available surplus material from grain cultivation,
are cheaper than trees and require less energy to pulp that
wood. Another example is seedflax, a fibre very comparable to
hemp, and available in Canada in huge quantities virtually
for free, since it is a by-product of linseed oil
production.[31]

Al Wong, president of the Vancouver-based Arbokem Inc., has
compared straw's low price and low pulp yield with wood's
higher price and higher pulp yield, and has determined that
straw comes in at $58 per ton, while wood costs $105 per ton.
North America annually produces approximately 200 million
tons of fibrous crop waste, from which 100 to 120 million
tons of papermaking pulp could be produced. North American
wood pulp production for 1993 was estimated by the Canadian
Pulp & Paper Association to be only 88 million tons.[32]

4) Textiles (bast):

Hemp for textiles is perhaps the greatest value added use
for hemp, but it is also the most involved. Seeding and
harvesting is critical to ensure only the highest quality
fibre, while processing is a multi-step, capital and usually
labour intensive process. After harvesting, the primary bast
fibres are separated from the hurds, after which they are
"hackled" to remove any remaining woody particles
and to align the fibres into a continuous "sliver"
for either wet or dry spinning into yarn. Secondary bast
fibres (or "tow"), the by-products of fibre
separation and hackling can be carded and then spun into a
lower quality yarn or twine. Alternate fiber separation
processes such as steam explosion, ultrasound or pulping can
be used to obtain various short fibre qualities (see below).

Although flax machinery can be adapted to produce hemp
textiles at a similar cost, more robust machinery would be
better suited, especially for fibre extraction. The
proportion of bast fibre in hemp plants is typically in the
22-30% range, but during processing, a loss of fibre in
inevitable. In U.K. trials, one tonne of hemp was calculated
to yield 15% or 150kg of line or high quality fibre. Further
losses of 35% in hackling and carding, 5% in yarn production
and a further 20% in boiling and bleaching the yarn to accept
dye, results in an net yield of 73kg, producing 182 square
meters of 400gsm (jeans weight) fabric. In addition 100 kg
(10%) of shorter or tow fibres would be generated, and 500kg
of hemp hurds. The long term price for hemp textiles has been
estimated at US$7-10/kg - above cotton, but below linen
(flax), since flax has the advantage of having a higher
spinning limit, enabling a finer end product. The potential
market is difficult to estimate, except to say that,
depending on price, it would be between cotton's 50% of total
fibre consumption and flax's 3%.[33]

5) Oil (seed):

When growing hemp for seed a much lower seeding rate
(usually only 10-15kg/ha) is used. A number of high yield,
monoecious strains have been developed specifically for seed
production. These varieties typically yield 0.7-1.2 t/ha, of
which 30-35% is oil.[34] This is somewhat lower than the
average oil extraction rate for canola of 42-43%, from
average yields in Canada of 1.27 tonnes per hectare,[35] but
hemp oil has the advantage of having unique nutraceutical
properties, and a potentially valuable protein meal and
(lower quality) fibre crop by-products. A closer competitor
would be flax (linseed) oil, which has very similar uses and
an oil content basically identical to hemp.[36] Since plant
densities between 80-400 plants per square meter have been
shown to have little effect on dry stem matter,[37] seeding
at a rate of 15 kg/ha (approximately 80 plants per square
meter) should result in both maximum fibre and seed yields.

Given the prohibitive price of importing certified seed into
Canada from Europe, another important element to seed
production will be the production of viable seed for Canadian
farmers. As seed varieties are bred specifically for local
conditions and uses, yields of fibre and seed are bound to
increase, the cost of seed will decrease dramatically, and
thus hemp cultivation will be much more competitive. Finally,
a somewhat unusual but serious impediment to growing hemp for
seed is that hemp seeds are a favorite meal of birds.

Hemp Processing

In general, the technology which has traditionally been
used to process hemp (and is still being used in China and
Eastern Europe) is not ideal for modern agriculture because
of the high labour demand and therefore high costs of these
methods. Although hemp has not had the benefit of continued
cultivation and processing in the West, technology has been
developed for similar crops, in particular kenaf and flax,
which can be adapted to hemp. Also, in the past few years, a
number of European companies have developed innovative new
approaches to processing hemp fibres.

The degree and type of processing required is determined by
the destination of the crop. End users, including paper
manufacturers, building product suppliers and textile mills
each require a supply of hemp in different forms, ranging
from raw stalks to fibers-only or hurds-only. By transporting
unprocessed hemp, shipping costs rise because the
"waste" portion of the stalk is shipped with the
portion that the purchaser requires as inputs for production.
Harvesting for chopped stalk essentially eliminates
processing costs, but does not capture revenue for the raw
fibre. At advanced stages of raw crop processing, hemp is
more marketable and less costly to transport than is
unprocessed hemp.

As the requirements to the fibre increases, so does the
necessary processing, and this technology also becomes more
complicated and costly. To determine the economic viability
of hemp, I will therefore focus on three approaches to
producing hemp commercially:

Separation of Bast Fibres from Hurds

bast fibres to be used for specialty paper and
textiles
hurds to be used for building materials and animal
bedding

Whole Stalk - for fiberboard

Seed Pressing - for oil, protein meal and building
materials

1. Separation of Bast Fibres
from Hurds

This is undoubtedly the highest value-added approach to
hemp, but it is also the most involved and costly, and the
most difficult to estimate. Under optimal conditions, the raw
fibre and hurds would be sold separately, generating the most
significant returns per hectare. Traditionally fibre
separation was a lengthy process of water or dew retting
(rotting) the crop after harvest either in water tanks,
rivers or ponds, or on the field, followed by breaking the
stems, scutching and finally hackling to ensure clean fibre.
This basic process has recently been used in France and in
trials in England, where processing was found to be "the
most difficult part of the whole venture and a key feature in
any future expansion."[38] The UK trials attempted to
use as high a degree of mechanization as possible, and so
after field retting and baling, the crop was delivered to an
existing flax processing factory for decortication (fibre
separation).

Although flax processing equipment has proven adequate for
hemp, equipment designed specifically for hemp processing
would be much more efficient and thus profitable over time.
There has been talk of the possibility of mobile processing
units to minimize transportation costs, but in the experience
of UK's Hemcore, the amount of equipment needed would make
this approach unrealistic. Regional primary processing units,
however, may be a more realistic approach to reducing these
transportation costs. Since the Canadian climate is
ill-suited to field retting, and as there is no existing long
fibre processing infrastructure in Canada, a traditional
processing strategy is at best a longer term opportunity
which is certain to require significant capital investment,
and further study.

A cost efficient and effective approach to fibre separation
has been developed in the Netherlands by E. de Meyer and W.
Huisman. Their process requires ensiling of the stalk for a
minimum of 6 months after field chopping. After the ensiling
period, the very clean bast is easily separated from the
hurds by floatation - the bast sinks, and the hurds float.
This process is estimated to cost only about C$5/tonne,
versus mechanical decortication which has a much higher rate
of cross-contamination between the bast and hurds, and can
cost up to C$100/tonne. The disadvantage of this system,
however, is that the ensilage period causes a substantial
reduction in the strength of the bast fibres, thereby
significantly reducing their value for most industrial
applications. If a method can be discovered to better
preserve the bast fibre strength this would be an excellent
fibre separation alternative.[39]

A number of innovative approaches for smaller scale hemp
processing have recently been developed on the lab scale,
including using steam explosion, detergents and ultrasound,
but for the most part these all still lack demonstration at
the pilot or production scale. Some of these technologies
produce short fibre or "cottonized" hemp which has
the advantage that it can be spun on slightly modified cotton
or wool processing equipment.
The first commercial project using such technology is being
undertaken this year in the former East Germany. Three Flaksy
(bast fibre decorticating and preparing) units recently
developed in Germany by the Bahmer Company are going into
operation in June, each having an hourly processing capacity
of two tonnes of flax and/or hemp fibre. Two of the lines are
intended to process flax into a fine short fibre for the
textile industry, but will likely also process hemp. The
third unit is combined with a detergent processing step which
produces a very fine, cotton-like flax fibre (FLASIN).[40]

Although such new processes are very promising, this
technology is still in its infancy, has limited availability
and is expensive to install and operate. The price of a
Flaksy line amounts to US$2 707 500 "delivered ex works,
Germany"[41] and may be even higher depending on the
quality of the breaker / decorticator unit, the number of
separation steps and the sophistication of the dust
collection system. In addition, operating costs per shift for
any of these lines are likely to be US$195 000 - $325
000.[42] It will be some time, therefore, before such
technology will be economically and technologically feasible
to implement in Canada.

The high cost of purchasing this machinery from overseas
vendors has led to an increased interest in the development
of domestically produced equipment. One example is Geof Kime
of Hempline, Inc., growers of the first Canadian hemp crop
since prohibition. Kime's expertise in the field of equipment
design and Hempline's early entry into the business has given
Hempline Inc. a distinct first mover advantage. Nonetheless,
for the time being it seems that it will be cheaper to import
finished textiles from such low-cost hemp producing countries
as China and Hungary.

2. Whole Stalk

When growing for the whole stalk of the hemp plant, very
little processing is required. The crop can be mowed and then
baled with conventional combines. The only further processing
required is drying (which can be done in the field after
mowing) and chopping which can be easily done with existing
equipment. If the highly valued bast fibre is not to be
separated from the hurds, however, it makes more economic
sense to grow hemp for stalk and seed, and harvesting the
stalk after the seed (see below).

3. Seed Pressing

The principal challenge in pressing hemp seed for oil is
that hemp seed oil is so highly unsaturated that rancidity
begins as soon as the oil is exposed to heat, light or air.
In 1986, advanced seed oil companies began using technology
that could extract oil in the absence of all three. This
proprietary technology uses inert gasses and vacuums to cold
press the seeds without contaminating the oil with oxygen,
and so avoids starting the chain reactions that create
rancidity. Using this technology reactive oils like hemp can
be pressed into a product which can be kept in a bottle for
up to a year without going rancid. [43]

Hemp oil is currently very expensive (about three times the
price of flax oil), but again this is almost exclusively due
to the high cost of importing seed. Since they have almost
identical yields, and oil contents, and flax is also very
highly unsaturated they should compete head to head price
wise. Hemp, however, has the advantage of being flavorful,
while flax oil is generally considered unpalatable, and is
almost always sold for consumption in capsule form.

Since the pressing technology best suited for hemp seed is
presently being used for other highly volatile oils, in
particular therapeutic oils, hemp would at least initially
compete in this high value specialty oil niche. Its main
competitors would be oils such as: evening primrose oil,
borage oil, black currant seed oil and flax oil, all which
are also typically taken in capsule form. Hemp seed oil would
likely not compete against cooking oils, since the extreme
heat of frying changes its molecular structure and may
diminish its nutritional value.

Hemp oil can also be used for commercial purposes, in
particular as a lubricant or in the production of varnishes
and oil paints. For centuries hemp oil was the principal oil
used for oil paints as it is a particularly good vehicle for
ground pigments, and is very quick drying. In these uses hemp
seed oil's proneness to rancidity is not a significant
factor, since it can be easily stabilized and preserved with
the addition of vitamin-E. In these applications, again its
most serious competitor is the less ideal flax oil, which
many manufacturers of paint supposedly were forced to switch
to after hemp's prohibition.[44]

After harvesting hemp for seed, a substantial stalk crop
remains. As has been previously discussed, the lower fibre
quality would not make this crop suitable for fibre
separation even if the processing technology were available.
The whole stalks are a valuable input for fibre board and
other composite building materials, however. Since harvesting
and baling the whole stalks does not present any significant
difficulties, the only potentially limiting factor is the
potentially high transportation costs were the crops to be
grown far from the board manufacturer.

Value of End
Products

Fibre Separation:

Bast Fibres:
According to UK trials, Sue Riddlestone reports that when
processed on a commercial scale, one tonne of raw hemp stalk
would conservatively produce 182 square meters of 400gsm
fabric (73kg). At current wholesale market prices of
approximately C$10 per square meter, this would translate
into C$1820/t. Given the longer term estimates of C$10-14/kg,
however, expected revenue generated from the bast fibre of
one tonne of hemp would be C$730-1022.[45] Since 2.5-4 tonnes
of hemp can be grown per acre, the total primary bast revenue
per acre would be C$1825-4088. These prices, however, must
cover the very substantial processing required to achieve a
fine hemp textile.
As an alternative input for fibre glass, one tonne of stalk
should yield a minimum of 150-200kg of suitable primary bast
fibre. At the reported market price of C$2800/t,[46] this
would generate C$420-560 per tonne of stalk, or
C$1050-2240/acre.
As an alternative to imported jute, Canada Cordage of
Kitchener, Ontario has offered $800/tonne for raw bast fibre
for processing into yarn, rope and electrical cable filler.
Although a superior fibre, at this price, bast fibre from an
acre of hemp would generate $300-640/acre.
As an input for high quality, specialty paper, it has been
estimated that hemp in the long term could command a 20%
premium over top quality long fibre pine pulps. [47]
Presently, however, because of its limited supply, the market
price for hemp pulp is in the US$2100/t range, versus around
US$600/t for a standard grade of softwood pulp.[48] This
premium is deceptive since the price of the input is
typically a small proportion (approximately 16.5%)of the
final cost of the pulp. In late 1995, for instance, standard
softwood pulp prices hit an all time high of US$1000/t. At
the same time, standard softwood wood chip prices were also
at their height at US$165/t. At current hemp pulp prices,
then, hemp bast only commands C$485/tonne.[49]

Hurds:

The most likely use for the principal by-product of
processing, the hurds, would be as a building product raw
material, or as animal bedding, specifically for horses which
because of its superior absorbency and rapid composting in
Europe fetches US$130-250/tonne. In either case, the main
competitor is wood shavings, and more recently other non-wood
crops such as straw or flax shives. These materials are
typically in the C$55-$70/t. Even at a very low final yield
of 1500-2400 kg/acre (60% hurd yield), these very low prices
would generate an additional C$83-$168/acre. At the premium
generated by hemp hurds elsewhere, this additional revenue
would be C$285-684.

Whole Stalk:

The uses and thus price for whole hemp stalk is likely to
be similar to hemp hurds, although the inclusion of the
strong bast fibres may in the future command a premium price
as an input for composite building materials. Assuming that
when being grown for whole stalk, the hemp is also being
grown for seed, for yields of 2.5-3t/ac, the projected
revenue from whole stalk would be C$137.5-$210.

Seed:

Until hemp can be grown for seed in Canada (or the U.S.),
hemp seed and hence oil prices in North America are very
inflated due to the cost of transport. Currently, hemp oil
sells wholesale for US$135/gallon[50] or approximately
US$38.50/kg (C$54/kg). Thus, at an extraction rate of 35% and
seed yields of 0.3-0.5t/ac, at current prices an acre of seed
pressed for oil will gross C$5670-$9450! Of course, once
grown domestically seed and oil prices would fall, probably
to a level similar to flax and canola. Since hemp oil is
presently about three times the price of flax oil, this
translates into a more realistic equilibrium price of
C$1890-3150. Again, these prices reflect wholesale prices,
and therefore include transportation of the seed to the
pressing facility, pressing and packaging costs, distribution
costs, margins, etc. [51]

In the event of the legalization of commercial hemp
production, the likely farmgate price for raw hemp seed has
been estimated at C$7.50-$9.25/bu.[52] This price is
comparable with, though on the higher end of prices for other
similar seed crops. At this price, an acre of hemp grown for
seed would generate $107.25-$220.15/acre.

Conclusions

Given these expected revenues and projected yields, I
estimate that growing for seed and fibre will generate
combined revenues of $244.75-$430.15/acre. Since the total
expected costs of growing hemp for seed are $237.50/acre,
even in a "worse case" scenario, a minimum return
of $7.25 is expected. As illustrated in the table below, this
is slightly better than the expected return from spring
wheat, when using average prices from 1989-1993. The median
expected hemp yields and prices generate expected returns
which are more than double the next best crop, Ontario
canola, and the highest estimates (which should still be
considered conservative) are really quite exceptional
compared to the other crops. It is worth noting again that
this high potential profitability is the result of hemp being
two crops in one. If hemp were grown only for seed OR whole
stalk, it would likely generate negative returns even in best
case scenarios.[53]

Expected Profitability of Hemp for
Seed and Stalk vs. Other Crops:

Canola (Ontario)

Grain Corn

Spring Wheat

Low P/Y Hemp

Average Hemp

High P/Y Hemp

Ave. Yield (bu/ac)

33

109

41

14.3bu/ac; +2.5t/ac

19bu/ac; +2.75t/ac

23.8bu/ac; +3t/ac

Ave. Price ($/bu)

6.30

2.86

3.59

$7.50/bu; $55.00/t

$8.38/bu; $62.50/t

$9.25/bu; $70.00/t

Total Revenue

207.00

311.74

147.19

244.75

337.45

430.15

Total Costs

166.55

277.80

140.39

237.50

237.50

237.50

Return ($/ac)

41.35

33.94

6.80

7.25

99.95

192.65

The further advantage of growing hemp for seed and whole
stalk is that very little is required in terms of capital
investment for new harvesting or processing technology and
facilities. The crop can be planted and harvested with
existing machinery, requiring at most only slight
adaptations, and existing processing facilities can transform
the crop into valuable oil and composite building products,
both of which have certain qualities which are superior to
products currently being produced out of more traditional raw
materials.

Because of the labour intensive nature of traditional fibre
separation, in order to competitively grow hemp for its
valuable bast fibre requires processing technology which is
not yet proven at a commercial level. In the future, the
viability of this process will have to be determined by
weighing the probably significant capital investment required
to establish this industry, and the processing costs against
the expected incremental revenues this value adding procedure
will generate. A primary stage of processing resulting in
clean, separated bast fibres will service industry requiring
these fibres in their raw form (for specialty paper or
fiberglass, for example). If the high revenues that, in
particular, fiberglass would seem to generate were to be
realized, it seems there will be more than ample incentive to
further pursue this alternative.

Creating a Canadian hemp textile industry require an
additional, secondary level of processing. After the bast
fibre is separated from the hurds, it must be combed, then
processed into a sliver (an assemblage of fibres in a
continuous form), then into a rove (a finer sliver) before
being ready for spinning and finally weaving. Since Canada
presently does not produce ANY agricultural crops for fibre,
we do not have even the basic infrastructure available. The
potential revenues are substantial, however, and if any of
the new "cottonizing" technologies prove themselves
on a commercial level, this may yet be a viable opportunity.
The other possibility, especially more in the short term may
be to export raw bast fibre to the U.S. for processing into
textiles, since the U.S. already has established cotton and
more importantly flax processing infrastructure in place.

Since hemp would seem to be financially very without having
to make any of these significant capital investments, it
seems that if hemp production were legalized it would be able
to more than adequately support itself, and further research
into the best approaches to value adding processing could
then be undertaken using Canadian grown hemp. Furthermore, if
Canada were to legalize hemp in the near future, Canadians
would also have an important first mover advantage in
relation to the U.S.. Since the U.S. is a huge potential
market which cannot satisfy its own pent-up demands for hemp,
a high demand and thus price level for Canadian grown hemp
would be assured.

Recommendations

Legalize commercial hemp production, the sooner the
better to capitalize on first mover advantage
Granting of permits should be under the ministry of
agriculture, and the process simplified to reduce the
risk of not being able to guarantee supply (the most
substantial risk for potential industrial end users)
Canadian grown seeds are essential to ensure hemp's
competitiveness:

to reduce seed cost
to reduce exposure to unstable international supply
of certified seed
to produce seeds which are specifically adapted to
Canadian (even local) growing conditions
to produce seeds which maximize yield of desired
qualities (i.e. stalk yield or bast or oil content)
since it will take a number of years to properly
establish a well adapted and diverse Canadian hemp
seed germplasm, work on this should commence as soon
as possible (despite research licenses having been
given out the past two years, all crops were required
to be harvested prior to going to seed)

Canadian seed must also be "certified
low-THC" to ensure that farmers will not be at risk
of losing their entire crop because of being even
slightly above the allowable THC limit.